Dollar Trades Mixed as US 10-Year Auction Yield Rises

Dollar Trades Mixed as US 10-Year Auction Yield Rises

Dollar trades mixed Wednesday as the United States (US) Treasury’s 10-year auction hit a high yield of 1.723% on Wednesday, up from the 1.518% high in the previous auction.

Market data shows the bid to cover ratio for the auction was 2.51, above the 2.43 ratio in the previous auction. Dealers represented 59.3% of the bids, with direct bidders at 11.16% and indirect bidders at 29.55%.

For takedown, bidders took 16.61%, with direct bidders at 17.86% and indirects were awarded 65.53%. The US dollar is mixed against its major trading partners early Wednesday ahead of the release of December US consumer price data.

Federal Reserve Chairman Jerome Powell said in his testimony Friday that conditions warrant a reduction in monetary policy accommodation through rate increases and possibly balance sheet roll-off this year to combat rising inflation that he says will last at least into the second half of 2022.

Analysts expect the overall CPI to rise by 0.4% and core prices to rise by 0.5%, enough to push the year-over-year rates to their highest points in decades and confirm the need for policy intervention.

Other data released on Wednesday include a rebound in weekly mortgage applications earlier in the day and weekly oil inventories and the monthly Treasury budget statement due later. The Federal Reserve will also publish its Beige Book summary of economic conditions at 2:00 pm ET.

Looking ahead, data on producer inflation and testimony from Fed Governor Lael Brainard are scheduled for Thursday and retail sales and industrial production data will be released on Friday.

A quick summary of foreign exchange action heading into Wednesday shows that USD-CAD declined to 1.2543 from 1.2573 at the Tuesday US close and 1.2642 a day earlier.

There is no Canadian data scheduled for release on Wednesday. Analysts see an increased chance of a rate hike by the Bank of Canada in the spring due to recent strong job gains and rising inflation.

USD-JPY rose to 115.4133 from 115.296 at the Tuesday US close but was little changed from its 115.4134 level a day earlier.

Bank of Japan Governor Haruhiko Kuroda said overnight that inflation is likely to rise faster in the coming months as the economy improves, but that conditions remain soft due to the pandemic.

EUR-USD slipped modestly to 1.1363 from 1.1369 at the Tuesday US close, staying above the 1.1340 level from a day ago.

EU industrial production data for November released earlier on Wednesday was stronger-than-expected but followed a sharp downward revision to the October reading. European Central Bank member Andrea Enria speaks later Wednesday.

The ECB does not meet again until Feb. 3. GBP-USD ticked up slightly to 1.3637 from 1.3634 and was ahead of the 1.3586 level a day ago. There are no key data releases from the UK on Wednesday, with UK GDP on Friday the highlight of the week, so political news regarding Prime Minister Boris Johnson will remain at the forefront.

The Bank of England meets next on Feb. 3 and is likely to consider further monetary policy tightening assuming that omicron cases have subsided. # Dollar Trades Mixed as US 10-Year Auction Yield Rises